Revocable Living Trusts

A few years ago, everywhere you looked, there was a lawyer giving a seminar on revocable living trusts (RLTs). The RLT was supposed to help you avoid the high cost and lengthy process of probate, avoid estate taxes, and protect your privacy. It was supposed to be the one estate planning document you needed, forget having a will.

Does an RLT really have all those wonderful benefits? For some people, it’s a great estate planning tool. For others, it’s overkill, way too much work and way too expensive. How do you know if it’s right for you?

An RLT is a device created by a trust document whereby title to your assets, as the grantor of the trust, is now given to a trustee (the trustee is also you). The trust agreement will then describe what happens to your assets when you die. Normally, when you die, all assets in your name must be distributed to your heirs through a process called probate. When you have an RLT that is properly set up, you don’t have any assets in your name. All of your assets are in the trust’s name. So, probate is not required. However, probate in New Jersey is a fairly quick, fairly inexpensive process (unlike in other states). So, avoiding probate is usually not the goal in New Jersey.

Having an RLT does not mean saving on estate taxes. The law does not give any special treatment for assets that you have in an RLT, since you can dissolve the RLT at any time.

When does having an RLT make sense? If you own property in more than one state, you would normally have to have probate done in every state in which you own property. The usual scenario is being a resident of New Jersey but having a second home in another state (maybe a house in the Poconos, or a condo in Florida). If all of your property is in an RLT, you do not have to go through probate in any state.

An RLT can make sense if you become incapacitated and cannot carry out your own affairs. A trust agreement can provide for a successor trustee to act in your stead if you cannot act for yourself, it can provide for determining when you can’t act for yourself and can spell out exactly what you would want done if you are incapacitated so your successor trustee knows how to carry out your wishes. In some instances, the actions of your successor trustee will be accepted by others more readily than if you have a durable power of attorney (a document that appoints someone to act for you when you can’t act for yourself).

Even if you do have an RLT, you should still have a will. In the event you have not transferred all of your assets into the RLT, you need the will to distribute those assets not in the RLT after you die.